Jakarta Post

Long-Term Survival for Oilfield Service Providers

Long-Term Survival for Oilfield Service Providers

Oil prices are likely to remain low for some time. By finding efficiencies, executives can create a tremendous growth platform.

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Long-Term Survival for Oilfield Service Providers

This article originally appeared in the Jakarta Post.

Until oil prices began to drop in 2014, North America’s oilfield services and equipment companies enjoyed a relatively smooth ride.

Over the previous decade, upstream E&P operators outsourced much of the work across a growing industry, paying a premium for availability when activity surpassed capacity.

Prices for equipment and services soared, and Oil Field Services & Equipment (OFSE) returns, though cyclical, were above normal.

Despite this, many OFSE providers left themselves poorly positioned for a downturn by allowing costs to rise along with pricing, and by orienting themselves to higher-cost, technically challenging applications-profit pools that have all but disappeared in today’s low-price environment.

When prices fell, OFSE executives followed their downturn playbook, cutting capacity, reducing overhead, and delaying capital spending. Even so, their revenues fell significantly as E&P customers slashed activity and pressured suppliers to cut pricing.

As a result, the leading OFSE companies saw a collective 25 percent drop in revenue from second quarter, 2014 (Q214) to second quarter, 2015 (Q215) and the sector lost more than US$130 billion in market capitalization.

Now many OFSE executives are coming to grips with the fact that we may be at a once-in-a-generation strategic crossroads that demands conscious and careful decisions about the future.

Ethan Phillips is a partner in Bain & Company’s Houston office and Marco Cioffi is a principal in Jakarta. Both work with Bain’s Oil & Gas practice.


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